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@Stille

What do you mean mental capacity to stop flights to Moscow/Middle East. And what do you mean with them to beg EZJ to hook up?

@DavidKov

Do you count lease as debt or not? Because is you do it always had debt. It is really confusing.

@DavidKov

You are just repeating a statement, but avoiding the discussion by not engaging in addressing what I called out to be material weaknesses in the points that you did make. You have not explained if you are talking about the financial or lease debt and why either would be a problem, since the financial debt is covered by cash and the leases by the aircrafts. Companies raise money because they have to refinance and debt holders need more insurance, covenants, or if they can't pay their bills - all of that can be ruled at currently. So you gotta explain more.

Even if you would be correct you lose all the credibility by not having sound arguments. It is like predicting Tesla is going to be great in 2013. If all you said by then is "I like their cars" then you being right is not worth a whole lot in the end.

@Robbren58

If you are really interested here is the short version. When you use a multiple the numerator and denominator should refer to the same basis. Take P/E vs. EV/EBIT. Price refers to Market Cap, so value of the equity and net income is the net income earned by equity holders. EV refers to the entire entity including debt financing, thus EBIT is an appropriate measure, as it is the operating income before interest (before debt holders are paid) so the income to both equity and debt.

Other example Price/Sales does not make sense only EV/Sales, as sales belong to the entirety of the company. If one company has 0 debt and 1000m market cap as well as 500m sales it trades at a Price/Sales of 2 and a EV/Sales of 2. Another company has a 1000m market cap and 2500m in debt. It trades at a Price/Sales of 2 and an EV/Sales of 6. Price Sales does not capture that, although this is very meaningful. This would also reflect on a P/E or EV/EBIT base with the former company being cheaper on each of those measures.

Now free cash flow usually refers to FCFE (free cash to equity). It is also often used as an entity number i.e. in a DCF (FCFF free cash flow to the firm), but if a company talks about free cash flow they usually will refer to operating cash flow - capital expenditure. Since IFRS 16 the rent expense i.e. for a leased building is not reported as an expense anymore, but as depreciation + lease interest in the P&L and lease interest (part of net income/OCF) + repayment of lease liabilities (part of financing cash flow) in the cash flow statement. Thus some people and companies calculate free cash flow still as OCF - Capex, despite the fact that obiously the repayment of lease liabilities (shown in the financing cash flow) should be subtracted.

Easy example you rent a building for 100k a year. You make 200k profit. You have 200k in depreciation of which the depreciation of the lease is 100k and 100k is for machines you bought and own. You spend 120k a year on new machines.

Your free cash flow before IFRS 16 was just the 200k profit + 100k depreciation (without the lease) so 300k in OCF and you spend 120k on capex, thus 180k of free cash flow. With IFRS 16 the OCF is 200k in profit + 200k in depreciation. This is 400k OCF and capex still 120k so 280k in free cash flow. However you will have a new line item that is something i.e. close to 100k repayment of lease liability in the financing cash flow that should be subtracted, thus showing the 180k FCF as well.

If you mix EBIT (a P&L accrual number) with FCF (a cash flow number) you are mixing entity with equity (als long as not FCFF is used). Also EBIT is before taxes whereas FCF is after taxes. What you also get are company specific mix ups i.e. the sale and lease back gain will only show as a 30% profit, yet a 100% cash flow gain. In order to understand cash flow conversion one should look at structural cash flow conversion drivers like ROIC. There is too much noise in things lik

I don't know if it is AI generated or not. But it does not matter. Using things like EBIT to free cash flow conversion without looking at the individual line items is not useful. Free Cash Flow in its mostly cited way is an equity based number - that is OCF based on net income minus capex. EBIT is an entity number. Also is this already IFRS adjusted free cash flow, so are repayments of lease liabilities subtracted already or are they still in the financing cash flow? Is lease interest also not included in EBIT? It also should be more NOPAT since FCF is also after tax. If you don't make the numbers match those are even less useless than they already are. You can use these if you are a quant, but in bottom up analysis this won't tell you basically anything.

@DavidKov

The impact of the Ukraine war aside from ATC ist not that much as nearby countries recovered quickly from the slump. It is also 3 aircraft in Ukraine not 4 and all of them are old CEO machines. It is not even clear in case of a hull loss how those would be treated as they are leased and insured.

But you are always switching topics here. You did not continue to address any of my points about the debt which initially appeared to be your leading point. Then about margins (which basically comes down to costs) and then Ryanair as competition.

I appreciate you raising concerns, but I don’t think staying surface level is really helping the development of a better understanding of the investment thesis. We got to go deeper to make progress.

@DavidKov

The decline in 2022 was not mainly due to war. It was due to terrible operational performance they had a 96% completion rate in June 2022 which is completely awful. They also started hedging only back in summer 2022. Those two factors impacted the fundamentals not so much the Ukraine war. Also you can’t just go by number of countries and assume because 4-5 countries are affected it will be worse. Ukraine is bad primarily because of the closed airspace resulting in ATC being overloaded in nearby countries. Again look at the revenue share of Middle East it is not that meaningful. Don’t get distracted by the share price in the end this will be about fundamentals.

About Ryanair. It is true that RYA is in superior in terms of its balance sheet and is in overall great financial condition, but that Wizz can’t compete with RYA is just not true. This game is about cost and Wizz can compete with Ryanair on a CASK basis. They reached parity pre-Covid and the set up in terms of fleet structure now is better than pre-COVID. I think they will like ahead of Ryanair if they get the capacity deployed. And that is more of a risk than losing a couple percentage points of revenue due to war.

@DavidKov

Still to see how the UAE JV will play out long term. As for Ukraine and Israel - Ryanair also offers/ed flights. And Ryanair already announced heavy investment if Ukraine reopens. Wizz is a CEE airline they expanded west, but naturally they stay more CEE focused also West is more slot constrained. So you can dislike the JV but the CEE focus is the natural strategy. You can also create more demand there with cheap flights as a lot of people never or have rarely ever flown in quite a few spots there.

Again the relevant Middle East revenue share is mid single digits. A full out war would be an adverse impact, but the real story is about:

1. (Stage length adjusted) ex-fuel CASKs

2. Them deploying all the capacity. If airbus delivers all the aircraft and the P&W issue phases out as currently seen they will have a massive capacity spike in FY26 which IS a BIG problem. A full-out war is less of a problem than deploying 40ish % capacity. So I think people get the priorities wrong here. That is why I said an official airbus delay would be great news. So I thing people should focus on that CASK & Capacity is what this will comm down to over the next years. For time horizons concerned with days and quarters - war and other events will likely be more important.

Also you skipped the part about the debt. Honestly interested in what you base your cap raise/default scenario on.

@DavidKov

Wizz did not predict the same fare weakness and they did not see the same fare weakness. RASK increased yoy as opposed to Ryanair. Ryanair was surprised by the fare weakness and they also had a negative reaction to that, but would you say Ryanair lied about it? No.

Wizz the had the wet leases, which really hit the P&L. You can call that mismanagement or whatever, but it is a fact that they entered several unplanned wet leases.

Now the “always a next disaster”. I agree with you to some extend. But this is more of an industry thing and why you don’t pay high multiples for airlines. The hedging and bad completion rates of the post covid times you can blame on Wizz management - the war and P&W issues obviously not and you can cross check other airlines. Ryanair in the past had issues with the MAX safety (MCAS etc.) and now Boeing delays. They did misshedge during the times of the great financial crisis. The industry itself is just vulnerable.

As for the margins. Their cash on hand is significantly higher than all the debt that is up for refinancing. So this can’t be the issue. Now I don’t know if you are referring to new leases, but leasing for a fully secured A321neo is just not a problem and I don’t see why it would be. This is rent. Before IFRS 16 this would not even show up as debt. So you can not put lease debt in the same category as a bond that got to be repaid or refinanced. You got to be more detailed here if you want to be credible.

The margins will be a function of CASK development. You can look at the ex-fuel CASK development and it is not looking bad at all. However a lot of grounded aircraft as well as all the cost that result from that i.e. building up staff etc. you will not have the pre-COVID CASK. I think it will likely take until exiting FY27/28 to be up on track with that. But utlilisation, load and completion have been progressing I don’t see the issue there. It is a cost first business and marings are a result of the CASK first.

As for sell-side analyst I really don’t care a lot about them and where I care at all about them is longer term predicitions. You don’t make a career on the sell-side on predicting 5y out and it shows. Wizz profits have been vastly overestimated when the share price was high and there is NO sophistication in long-term modeling from the sell side. Can’t stress that enough.

I agree if I want safe within airlines I take Ryanair. Great company. But Wizz is valued with very low percentage of returning to (inflation adjusted) stage length adjusted pre-COVID CASK levels while deploying all incoming aircraft. If they do that there is almost no doubt in my mind that they will trade at multiples where they are trading now. I don’t mind losing 100% even with a 30% prob. if I am right about a >30% prob. of 3-4x.

What will be really interesting to see next is if Airbus delays aircraft deliveries to Wizz in F26 this would be great. Also early Oct. Wizz will presen

@DavidKov

Q1 was the weak fare environment same as for Ryanair, although Wizz RASK still grew vs. Ryanair. In combination with the wet lease (and FX impact). To use that as structural information is a bit baseless.

Now as for the punctuality etc. completion rates are very good. Punctuality is not but then again compare that to the competition and that is not good either.

I don’t know where you get that Varradi lied about XYZ from. Ex-fuel CASKs have decreased progressively since COVID and are on a decent level. If you take out wet leases and P&W induced underutilization I don’t think you would view it as a problem.

Lastly lower margins leading to cap raise/default. Please explain what do you even mean - defaulting/raising capital for what. Their PDP loan, ETS loan or EMNT? They have enough cash on hand to pay for all of those. What is left is leases - so are you saying they won’t get leases anymore or JOLCOs or what do you mean? There are no financial covenants, they are earnings money even when they do it at effective margins that are well below their structural ones. So I don’t get why you would think that.

@timbo87 Also did not wanted to imply that you did. Just wanted to clarify from my side, when I argue all the things in favor of them that there are still meaningful risks involved. I agree Varradi was happy with operating performance so underlying utilization, CASK etc. PW is tainting results and the sudden swing from possibly 55 to in the end 46 aircraft really hurt them because they scrambled for wet leases. They will certainly try to renegotiate notice times to not let that happen again.

I would be surprised if they announce a share buyback. Wizz has been conservative they carried more than a billion of cash before the pandemic just out of caution knowing airlines are a volatile past. They want to regain that financial strength they are currently at a split rating. I mean never say never, but very much unlikely.

@timbo87 appreciate that. Glad that some people are interested in fundamentals.

There is a lot of things that will be really interesting here to see play out over the next couple of years. They have to get through this time and it is not risk free - not to give a false impression. But there a couple of interesting things happening that get too little attention. Here is another fun fact:

2024 25% of free allotments expired; 2025 another 25% of ETF free allotments run out and starting 2026 no free allotments. Wizz will finally be on level playing ground with competition from that point out. It is incredible to me how this has not been communicated more. As a reminder airlines have to purchase ETS certificates for each ton of carbon emitted. When the EU ETS was created airlines got free allotments depending on their current size. They get these free allotments every year. Wizz war pretty small so they got only some. Now with Wizz having grown that much these yearly allotments only cover 20% of their need currently. For Ryanair this is 40%ish and for all others easyJet etc. it is >60%. Everything else has to be purchased at around 70€ per ton currently. Now what will happen if these run out? This will go into ticket prices as EU ETS costs are basically treated as fuel costs.

But combine the uneven allotments with the fact that Wizz has by then around 80%-90% of its fleet as NEOs (depending on airbus delays) by March 26. Ryanair will stand maybe at like 40% and easyJet at 50% depending on deliveries. All the others will be way worse. The NEO/MAX burns 20% less fuel. This is some relatively simple math when plugging in the fuel and ETS prices at that time as input.

@DD77 Don’t know if a takeover is likely. Varradi and IndiGo have great influence over the board. Unless they can keep their equity, I don’t think they would want to sell at even 2x the current price. And for the acquirer justifying 100% control premium is difficult especially for public companies. Varradi also has a potentially huge pay package up to 100mn. Lastly who would buy Wizz. Ryanair can’t because that would be a fairly quick anti trust case in my view. I am not sure who would have an easy anti trust case as I am not that familiar with the law around that. O Leary said Lufthansa would buy them, but then again he says a lot of things.

@MadMat. I like that you are participating in the conversation around fundamentals.

It is significantly better than described by you. The EMTN does not stand at around 3bn.

Wizz has four broad types of debt. Unsecured (EMTN), secured (through PDP and ETS) and lease debt. Now the last type of debt is a convertible that will convert since its strike price 1€, so you can leave that out of the picture but when calculating market cap Wizz has 127m shares not 103! People also quote the market cap incorrectly around here.

Lets take the data from the March 2024 annual report:

ca. 500m is unsecured which is the EMTN maturing in 2026.

ca. 460m is secured debt. This secured in one case secured by the pre-delivery-payments (PDPs). Pre-delivery payments are made by Wizz to Airbus as advanced for the future delivery of aircrafts. Wizz has 842.3m of those payments sitting with Airbus & Co. This is as good as cash and will convert to cash upon delivery with the SLB.

A part of those are pledged as collateral with $205.9m out of $280 being drawn on the PDP facility. Those will come up for refinancing in July 2025. The other is the pledged ETS facility (which are the carbon emission rights in the EU) where $253.6m are outstanding to be repurchased in September 2024.

The rest of the debt are capitalized lease payments. Those are basically the future rent payments for the aircrafts including the interest for the lessor. There is no maturity on any of these. Wizz just has to pay the lease rate. They will return the aircraft after 9-10 years and that is it. There is no refinancing except for Wizz having to find someone to lease the incoming aircraft to them. As those leasing contracts are not done above any fair value of aircrafts the aircraft gives full insurance that, in case Wizz would not be able to make a payment, they could take the aircraft back and recoup everything. This is the great thing about aircraft, they are easy to move and resell/lease. The lease liabilities were 5255m.

Now Wizz has to refinance 500m from the EMTN. 206.8 from the PDP secured debt. 253.6m from the ETS secured debt.

They will not refinance 5255m as lease liabilities but only get new lease contract, which is basically renting an aircraft for 9-10 years. None of the borrowings contain any financial covenants. The company has 1479m in unrestricted cash and cash equivalents. Also they have PDPs sitting with Airbus, ETS credits and maintenance assets. So someone please explain to me how they will not make refinance as they can fully pay off their debt that has to be refinanced. So basically what you are saying (not MadMat but some pople here) is they will not find anyone to do a sale and leaseback with. Now the lease market has NO signs of not trusting Wizz with a lease that is fully secured by the aircraft itself.

Okay on the debt. What are you thinking is happening on the debt side? Everyone is so worried here. You can't treat IFRS 16 debt in the same way as a general purpose bond. If that was straight debt without an asset - OK, but that is not the case.

This does not compare to ASOS, which is losing money and has been aside from stock reduction losing cash, while being net debt ex. IFRS 16. Thus they were forced to raise equity to refinance.

Wizz is substantially net cash ex. IFRS 16. All the IFRS/JOLCO contracts are backed by the aircrafts. Why would Wizz tap financing now - for what? Aside from having the PDP financing options and other ways to get liquidity keep in mind that the delivery of new aircrafts is yielding them around 10m per aircraft in cash through the SLB.

The demand on the lessor side for A321neo is very high. It is not an issue to get an aircraft financed. They have a split investment grade rating. What is this conversation about?

Debt to equity ratio is not a good measure. If you do enough share repurchases you might end with negative equity - are you a bad company in that case? Wizz will hold cash and otherwise carry a negative working capital and fully finance its aircraft. It will likely trade at 5x-6 Debt/Equity based on that model alone. Now if they repay their non lease debt they will be back at that ratio and it will not move lower than that. It is part of the business model.

Currently they will not raise equity, but what is even less founded in reality is them going bankrupt based on current operations. I would be curious what the thought process is there, because if it is headline debt / EBITDA is high and they have operational problems with GFT that is just too simplistic.

No the sale and leaseback is different from the wet lease topic and is the standard procedure for Wizz to finance their aircrafts. They will pay the pre-delivery payment i.e. 10% of the aircraft i.e. 4.5m. At delivery they will have to pay the remaining i.e. 40.5. They will sell the aircraft to a lessor for a different price i.e. 55m and receive the difference between the 40.5 and 55m in cash. Then they will lease the aircraft for a rate (lease rate factor) by paying i.e. 0.7% of the aircraft SLB value per month. Over 9-10 years, which is a typical lease term they will effectively pay interest on a 55m loan as well as compensate the lessor for the difference between the SLB price (55m) and the residual value of the aircraft after 9-10 years. For their purchases those will be dry leases. This is not different to Ryanair buying and financing the aircraft, except for the recognition in P&L and cash flow will be more front end loaded for Wizz vs. Ryanair. That is not really in any earnings release only in the annual report and by doing analysis on the industry.

The wet lease is including the operation of the aircraft i.e. crew, maintenance etc.

I don't know where you get the 200% D&A increase from, but overall the fleet is growing fast and some engine overhaul being capitalized.

I don't know there you got that engine problems done by FY25 from. Also depends on what you mean with them being resolved. In terms of new engines without the powdered metal issue? Keep in mind the engines have to problems the other one is overheating. The latter will likely only be resolved when the GFT Advantage enters in like 2027. Though this issue would not cause the grounding of the aircraft and primarily affect the aircraft deployed in hot regions like UAE.

But I am glad someone is at least talking about the fundamentals of the company. I think this is just a forum for people to speculate on daily/weekly prices and trash talk each other? IDK.

I don't have any bancruptcy theory if that was referring to me. I was simply pointing out the fact that sales and leasebacks understate the cash flow reality by a factor of almost three, because I get all of the sale and leaseback cash gain upfront and I only show lease length/useful life in the P&L. Correct me if I am wrong about that.

On the guidance. Bad, yes but I don't think the reasoning is bad. They expected like 50 aircrafts grounded. P&W told them it is going to be 55. They scramble for wet leases in a very expensive wet lease market and commit, because holding capacity steady is a very different ball game from shrinking, especially with just a few weeks notice. Then all of a sudden P&W does this really quick turn arounds, thus they now have 9 more aircraft than expected plus the expensive wet leases. This is a massive hit if you do the math. Now they could have structured their contract with P&W differently to include minimum notice but then again they want their aircrafts to be back quick. I would not blame that on optimism. They guide at what they see. Maybe more conservatism for unforeseen events, but I don't think it was optimistic.

Has anyone here looked into the sale and leaseback transaction? It seems like they enter these at prices as high as 65m given the around 45m aircraft price it seems like most of the economic benefits of the entire lease life of the aircraft is transferred to the delivery date. The accrual gain in the P&L is only about 36% given that the useful life of an A321neo should be around 28 years and the lease is for 9 years. Anyone looking deeper into that as well? If they stop taking on aircrafts profits, but mostly cash flows will be hit hard. Especially in the higher rate environment the total value for a fully financed aircraft will not be substantially higher than 20m. Any takes on that?

DavidKov: About losing Middle East markets. Affected regions Israel, Jordan etc. are about mid single digit of revenue. Even if you are counting stationed aircraft those would be around 5-6% of the fleet.

The most important difference between now and 2022 is ex-fuel CASK and operational efficiency is back. Utilization reaching pre-COVID levels. Flight completion rate. Load factors. I mean it is a ULCC it is all about competitive costs. There are two main issues for Wizz: 1. Keep costs low 2. Find enough demand to place all the incoming aircrafts.